Answer to Question #66507 in Financial Math for Mage

Question

The company has been reporting its profits using absorption costing system. During the financial year ended 30 September 2015, the following summary statement was provided:Currently the company is implementing strategies to improve its profitability, which are to be implemented in two phases; A and B. Each phase will cover a period of six months.The expected production and sales in units for each of the phases are shown:The fixed costs are expected to increase by 20% while the variable costs per unit will remain as they were in the previous period. The selling price per unit will be Shs. 1,500.Required:a) Profit and loss statements for phases A and B using:i)Marginal costing.
ii)Absorption costingb)Briefly explain the differences resulting from the two methods employed in (a) above of reporting profits.c) Reconcile the resulting difference in the reported profit under the two methods.d)Briefly explain which of the two methods is better in estimating profits of a manufacturing enterprise.